The manufacturer of keyboards and mice impresses with high profits. But company boss Hanneke Faber doesn’t want to give rise to false hopes. That will be punished.
Keyboards are Logitech’s second largest product group and were purchased more frequently towards the end of the year.
Brent Lewin / Bloomberg
Making computer mice, keyboards, and webcams isn’t magic. Nevertheless, Logitech, the global market leader, has mastered a magic trick: the company does more with less. Since the end of 2021, Logitech’s sales have fallen every quarter compared to the same quarter last year. But since mid-2023, the company has managed to generate more profit. This is possible because the costs are kept very well under control. This operational discipline surprises even experts.
Logitech can really use this ray of hope. Big tasks lie ahead of the group, which experienced a very turbulent year in 2023. It culminated in December with the arrival of Hanneke Faber as the new boss. Faber is starting with a tailwind: the Lausanne-based company’s operating profit climbed to $222 million in the final quarter of last year. That is 26 percent more than in the final quarter of 2022.
Too little confidence: the share price crashes
Investors are still not satisfied. Logitech shares lost 9 percent of their value on Tuesday despite the good result. They continued the decline on Wednesday and lost another 2 percent to 74 francs in the morning.
Faber has not yet been able to answer the crucial question: When will Logitech increase sales again? Because of the uncertain overall economic situation, it is difficult to say, the 55-year-old admitted in a statement.
This caution may have surprised the stock market, because the longed-for trough seems to be emerging: sales from October to December amounted to almost 1.3 billion dollars, only 1 percent less than in the same quarter of the previous year. This is a sign of improvement. The Swiss-American company therefore increased its expectations for the entire financial year, which lasts until the end of March 2024. Logitech is optimistic that it will be able to contain the decline in sales to a maximum of 7 percent in the full twelve months.
Hanneke Faber came to Logitech from Unilever.
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Investors should actually welcome Faber’s cautious tone. He is a clear contrast to the appearance of former CEO Bracken Darrell, who unexpectedly resigned in June 2023. The American was a great optimist – even when the Corona boom collapsed.
In the spring of 2020, Logitech’s sales soared as office workers geared up to work from home and companies invested in video conferencing equipment. Gaming accessories also found huge sales because leisure options were limited during the lockdowns.
Do bosses from outside the industry bring you luck?
With the end of the pandemic, the golden times for Logitech ended. Darrell, who has been in office for ten years, was accused of having no strategy beyond the hope of a revival. Economic uncertainty and fears of recession made companies hesitant to invest further in video equipment; Private customers held back because of inflation. Logitech co-founder Daniel Borel stated that the company had let the reins slide and shot sharply at the board of directors.
Since Darrell’s departure, the share price has clearly increased again. Faber’s caution could now also have been a reason for investors to take price profits. Even in relation to the higher expected company profit, the shares were significantly more expensive than the ten-year average, commented the bank Baader Helvea. There are currently more risks than opportunities for the course.
Like Darrell, the Dutch Faber comes not from the computer industry, but from the consumer goods industry. She most recently headed Unilever’s food division and had previously worked at Procter & Gamble, similar to Darrell.
Advance praise for Logitech
Development of share prices since the beginning of 2020, in %
Swiss-Performance-Index (SPI)
1
Resignation of CEO Bracken Darrell
If outside perspective is a factor in Logitech’s success, Faber’s chances are good. The internal homework has been done: costs are low, cash flow is high, Logitech is debt-free. Now only the customers have to play along again – but the competition for peripheral devices is intense. Logitech has to assert itself against Microsoft, HP, Dell and Asus, among others. UBS also fears greater competition from Apple, Sony and Cisco.
Logitech should avoid a price war
Traditionally, Logitech is strong with private customers. Gaming accessories are the most important product group. Due to high competition, pricing is crucial – part of the good operating result in the last quarter is due to Logitech having to offer fewer discounts in the USA. The company is praised for its designs. Faber must ensure that it stays that way to avoid being drawn into a price war.
Prices are also an important argument for many corporate customers. You have to carefully consider how you spend your money. In computing, cybersecurity and, more recently, artificial intelligence have often taken priority. Helvetische Bank commented that there would probably have to be a comprehensive renewal of the installed hardware base in order to help Logitech return to annual growth rates of up to 10 percent.
In the long term, it is logical to expect that every conference room will be equipped with video equipment, said Logitech CFO Chuck Boynton. But there is no guarantee that this will happen next year. Companies first wanted to find the right model for hybrid working and fix their office inventory before investing in more conference systems. The office vacancy rate in the USA reached a record level at the end of 2023. It sounds like Logitech will need the operational magic for a while.